The Financial Times on Wednesday quoted a member of the LSE board as saying that the proposal to merge with the Frankfurt bourse to form a new market called iX had been shelved in the light of the Swedish bid, and that "all bets are off" on the German merger. The LSE shareholders had been due to vote on the iX project on September 14, but the vote was postponed indefinitely after OM announced its hostile bid last week.

There has been much speculation that British information group Reuters, or the Euronext merger of the Paris, Brussels and Amsterdam exchanges will now make a counterbid for the LSE, but since Euronext does not officially come into existence until September 22 no decision can be made until then. The OM bid came amid doubts over whether the LSE shareholders would support the iX merger plan.

Shareholders will have a chance to have their say next week when the annual general meeting is going ahead as scheduled, even if the vote on the iX merger has been taken off the agenda. There has even been talk that Nasdaq may decide to act as some sort of white knight if the German exchange, Deutsche Boerse, decides to make a counterbid for the LSE to protect the iX merger plan.

Nasdaq is already a partner in iX, adding its brand name to the proposed iX exchange. The LSE has made it clear that it considers "derisory" OM's initial bid valuing the stock exchange at little more than 800 million pounds (1.3 billion euros, 1.2 billion dollars).

The iX deal was put together in response to the revolution in stock markets wrought by technological change and the advent of the single European currency. Traditional single-country exchanges suddenly faced the imperative of cutting costs to compete with US online electronic platforms, while extending their horizons to take account of cross-border trading in the euro currency. But the iX deal has encountered numerous teething problems, not least with issues of clearing, settlement and regulation that have raised questions about the wisdom of the merger.

Some German blue-chip companies are unhappy with plans to transfer their listing to London under the merger. Many LSE shareholders oppose the 50-50 combination, suspecting it to be a "reverse takeover" of the 227-year-old London Stock Exchange by the upstart Frankfurt market and its clearly superior technology. Against this background, the LSE suddenly became vulnerable when it demutualised in March, turning itself from an organisation jointly owned by its users into a public limited company as vulnerable to takeover as any other mid-ranking company.